HELP Panel Hears Support for Auto Features, Education

Witnesses appearing before the U.S. Senate Committee on
Health, Education, Labor and Pensions (HELP) Thursday told lawmakers that while
the retirement income sufficiency issue in the U.S. is a difficult one,
there are “fixes” to consider.

The witnesses were appearing during a HELP Committee hearing on how
Americans can be encouraged and helped to save enough for their
retirement years.

Several applauded the impacts of auto-plan features
(particularly enrollment and escalation), but Lori Lucas, Executive Vice
President, Callan Associates, who appeared on behalf of the Defined
Contribution Institutional Investment Association, told the panel that
sponsors need to be encouraged to be more aggressive in setting auto
plan default savings and escalation rates. For example, Lucas suggested
that auto enrollment deferral could start at 6% immediately, rather than
beginning at 3% and moving gradually to 6%. More effective education
will help to hold down opt-out rates, Lucas asserted.

“The good news is that much can be done from a plan sponsor,
policymaker and provider perspective to facilitate positive outcomes
within the context of the existing framework of automatic enrollment and
automatic contribution escalation,” Lucas testified. “Thoughtful plan design and communication can
materially alter the long-term savings levels of millions of Americans.
In contrast, the alternative—plan design and communication that do not
consider long-term income replacement ramifications—may have painful
long-term social and economic consequences when it comes to American’s
retirement security.

Julie Agnew, Associate Professor of Finance and Economics and
Co-Director of the Center for Interdisciplinary Behavioral Finance
Research (CIBFR) Mason School of Business, The College of William and
Mary, also called for a strengthening of ongoing financial education
efforts.

“I also believe that more needs to be done to better integrate
financial education into the daily lives of Americans starting at an
early age and at points where important financial decisions are being
made,” Agnew said. “Financial experts
should be used to make sure that the correct lessons are being taught
and marketing experts should be involved so that people actually listen
and are engaged in the message. We also must test to make sure these
methods are effective, because we have too many examples today of
programs that do not work.”

Finally, Jeffrey R. Brown, University of Illinois at
Urbana-Champaign College of Business, proposed the notion of
auto-annuitization, but admitted the concept still needed further study.

“To put it simply, in addition to thinking about the “glide
path” for the allocation between stocks and bonds (and other asset
classes), I would like to see products which also automate the “glide
path” between annuitized and non-annuitized assets,” Brown testified,
according to his remarks. “The gradual, and partial, annuitization of
accounts would be a very natural and very welcome evolution of these
plans. I am not suggesting that such an approach be mandated. Rather, I
would like to see such an approach encouraged – or at least not
discouraged – through the regulatory framework. Providing plan sponsors
with clear fiduciary safe harbors for providing such products is one
important consideration.”